Regulators are starting to push back against premium increases of as much as 40 percent

A 40 percent increase by Allstate in Georgia, a 32 percent rise sought by Nationwide Mutual Insurance in California, an 11 percent bump by State Farm in New York. Insurers are imposing steep increases on auto insurance rates, with state regulators doing little to stop them.

Premiums are increasing faster than other inflation-hit items, such as rent and food. Car-insurance rates increased 17 percent in the 12 months to May, more than four times the 4 percent rise in overall inflation, Labor Department data show. 

“Unrestrained rate hikes are hitting the pocketbooks of Americans, and those least able to pay are seeing the worst burden,” said Carmen Balber, executive director of consumer group Consumer Watchdog. 

In states such as California and Florida, high auto premium increases are occurring at the same time that homeowners’ policies are getting more expensive, too.

Auto insurers say their rate requests are driven by necessity, not greed. The cost of claims has soared since the pandemic, due to more accidents, higher repair costs, bigger medical bills and increased litigation. Car insurers last year lost on average 12 cents for every dollar of premium written, according to S&P Global. State Farm, the country’s biggest car insurer by premium volume, lost 28 cents for every dollar written last year, posting a $13 billion underwriting loss for its auto arm.

“It’s probably the worst period for auto insurers it’s been in 30 years at least,” said Neil Alldredge, chief executive of industry body National Association of Mutual Insurance Companies.

State regulators’ influence over car-insurance rate increases varies a lot. Their powers range from states such as California, where increases can take effect only after they are approved, to Wyoming, where insurers don’t have to notify the state about rate changes.

New York is one of the toughest policers of car-insurance rate requests, industry executives say. The state has in the past 12 months agreed to a 6.8 percent increase for Geico, and 10.6 percent for State Farm, after the companies originally requested increases of 11.1 percent and 12.5 percent, respectively, according to S&P Global.

The New York Department of Financial Services declined to comment. 

In Florida, another state where regulators have to preapprove any increases to car-insurance premiums, rates have increased 15 percent year-over-year to an average $3,183 for full coverage, according to personal finance website Bankrate. That makes the Sunshine State the most expensive in the nation for auto insurance, the Bankrate study earlier this year found. One reason: big auto insurance losses from last year’s Hurricane Ian. 

The Florida Office of Insurance Regulation is required by state law to ensure rate increases are “adequate to maintain insurer solvency and pay claims,” while also preventing excessive pricing, a spokeswoman said. 

A few states are pushing back. North Carolina’s insurance commissioner has set a fall hearing date to challenge a 28.4 percent increase requested by a group representing the state’s auto insurers. In Georgia, a new law will give the state increased rights to review rate requests. That follows an increase by Allstate of more than 40 percent in its rates last year, which Georgia’s insurance commissioner said “exploit[ed] a loophole” in the existing rules. 

An Allstate spokesman referred to a statement from the Insurance Information Institute, saying “there was no loophole in Georgia,” and insurers had followed the rules. “Making the regulatory process of implementing rate increases more burdensome [under the new law] will make it more difficult for insurers to take on risk,” the statement added.

Insurers say states that push back too hard can end up hurting consumers, by causing companies to either pull back or impose much bigger increases than those initially requested.

California’s insurance commissioner didn’t grant any personal car-insurance rate increases between March 2020 and last fall. Under state laws, insurers can’t stop offering new auto policies if they want to stay in California. 

The companies sidestepped that requirement by making it harder for customers to get policies. Some closed offices or removed their details from agents’ software. Allstate reported a 37 percent drop in new applications in California in the three months through March, almost double its 22 percent fall nationwide.

Now that California’s commissioner has started agreeing to car-insurance increases, some insurers are asking for big numbers. Nationwide has requested 32.3 percent, for example. State Farm has a request for 24.6 percent pending, having already had a 6.9 percent increase approved earlier this year, state records show.

A Nationwide spokesman declined to comment. A State Farm spokesman said that after sustaining unprecedented underwriting losses last year, “we continue to adjust…to make sure we are matching price to risk.”

Denneile Ritter, a vice president at the American Property Casualty Insurance Association, laid the blame for the double-digit rate requests in the Golden State at the door of the regulator. The big rate increases can be traced back to the long hiatus when no increases were approved, she said.

Michael Soller, California’s deputy insurance commissioner, said it was the big insurers who in effect put rates on hold, by failing to request increases until the end of 2021 or even later. 

“Our department’s experts have decades of experience in the insurance industry…but they aren’t mind readers,” Soller added. “We will not accept blame for situations…when insurance companies did not step forward.” 

Write to Jean Eaglesham at Jean.Eaglesham@wsj.com

By Ryan Felton

Our Wednesday Weekly newsletter brings Greater Cincinnati Auto Dealers Assn. member news, views from our vice president, notices about our upcoming professional development events and helpful industry news to your inbox.

Just complete the form to subscribe!

By Laurence Iliff 

Now that there are no auto shows — or other public automaker events — we can reignite the debate over whether they are worthwhile. Automakers have done an admirable job scrambling to arrange live-video car debuts, and even driving events, through online presentations and no-touch vehicle loans.

So, it can be done.

And it’s fair to say that some of the older show formats have become stale. Too many presentations are heavy on slick video and short on public participation. Now that the virtual alternative is real and not theoretical, it’s fair to consider as an option.

And Zoom ain’t it, chief.

Car shoppers and auto writers need more interaction with engineers and product specialists, not less. Post-coronavirus reality needs splashy debuts and eye-rolling hype and old-fashioned kicking of the tires and sitting in the seats — in real life.

Some of the virtual presentations by automakers have been very well done given the circumstances. But the real value of auto shows is what happens after the presentations. That’s true for reporters interviewing executives on the show floor or having less structured conversations outside the convention center. It’s also true for the public as more automakers focus on live demonstrations of safety and tech features.

Sam Abuelsamid, principal analyst for Navigant, remembers the last big financial crisis when automakers tried virtual presentations to save money. Once the worst of the crisis passed, automakers went back to real-life events because they made sense.

“My guess is that once this subsides, and people can start mixing again, automakers will go back to the way it was,” he said. “While the online presentation is fine up to a point, one of the advantages when you are at the events is being able to talk to subject-matter experts. And you miss out on that sitting on your couch watching it on your computer.”

________________________________________________________________________________________

LETTER TO THE EDITOR:

Thank you for “COVID-19 diary: OK, we still need kick-the-tires auto shows” (Laurence Iliff, April 20). The Auto Shows of North America could not agree more. No platform is better equipped than auto shows for connecting customers with the best that auto manufacturers have to offer.

For over 100 years, auto shows in North America have helped enhance automotive sales and increase brand loyalty, even as wars, pandemics and economic recessions have plagued our country. Indeed, as the coronavirus crisis subsides, auto shows will be front and center leading the recovery — and we want to help.

We have proven time and again that auto shows are vital to the success of the automotive industry, and we stand ready to make sure that dealers, communities, consumers and OEMs not just recover, but come back stronger than ever.

SCOTT LAMBERT, 2020 co-chair, Auto Shows of North America, West St. Paul, Minn.

JENN JACKSON, 2020 co-chair, Auto Shows of North America, Charlotte, N.C.

By Steve Watkins  – Staff Reporter, Cincinnati Business Courier

Barry Peterson has some tips for Greater Cincinnati small business owners who are trying to get their share of the U.S. Small Business Administration’s new Paycheck Protection Program.

Peterson should know. He’s helped 37 companies – all of the portfolio companies in which his firm, downtown Cincinnati-based Northcreek Mezzanine, has invested – go through the PPP process.

By Sougata Mukherjee and Steve Watkins – Cincinnati Business Courier

Cincinnati banks, like those across the country, have been inundated by applications from small businesses seeking money through the U.S. Small Business Administration‘s new Paycheck Protection Program.

But for companies rushing for cash, there are several things small-business owners need to be mindful of, bankers said.

Banks have been scrambling to handle the flood of applications since the program launched Friday. Fifth Third Bank (Nasdaq: FITB), Cincinnati’s largest local bank and the nation’s ninth-largest U.S.-based consumer bank, had received 22,000 applications as of midday Tuesday, CEO Greg Carmichael told me.

Stuart Sorkin is the founder of The Business and Legal Advisors, a consulting firm specializing in the financial and legal protection of business owners, executives, and entrepreneurs throughout the United States and overseas at every stage of their business life cycle. 

Mr. Sorkin works with startups and small- to mid-size business owners to integrate their personal financial and estate planning goals with the development and implementation of growth and/or succession or exit strategy for their business.

Mr. Sorkin is the co-author of Expensive Mistakes When Buying & Selling Companies…and How to Avoid Them in Your Deals.  As a former entrepreneur, CPA, and attorney with more than 30 years of experience, he possesses a unique set of capabilities to assist a business owner with the challenges of growing and/or exiting a business.

Mr. Sorkin works with clients on all forms of transactional legal work, including: choice and formation of business entities; raising of capital and financing; mergers and acquisition; real estate acquisition and development; incentive compensation; federal and state income tax planning; succession and retirement planning; estate planning and asset protection; including, trusts; and, family and charitable gifting strategies and family partnerships.

Mr. Sorkin has been interviewed by the Wall Street Journal, Time Magazine, USA Today, Money Magazine and BankRate.com on a wide range of tax matters, and is a frequent lecturer on exit strategies, estate planning and asset protection to various professional and small business organizations and associations.

His specializes in business consulting, start-ups, mergers and acquisitions as well as estate planning and asset Protection

March 27, 2020 – The downtown Cincinnati GCADA Deputy Registrar Office and Hamilton Co. Clerk of Courts Office will be open limited hours Mondays through Fridays for dealer work beginning Monday, March 30, 2020.

The Clerk of Courts Office hours will be 8 a.m. to noon by appointment. Dealers should call ahead to (513) 946-6450.

Our GCADA Deputy Registrar Office hours will be 8 a.m. to 11 a.m. Contact the office at (513) 721-3271 or Charlie Howard at (513) 516-6762.

U.S. Senate passed bill March 25 and U.S. House expected to pass March 27  

NADA Chairman Rhett Ricart praises senate passage of economic stimulus package

NADA circulated the following preliminary summary of the $2 trillion relief bill passed late last night by the U.S. Senate. 

The U.S. House is expected to vote on and pass the bill tomorrow.  Currently,  the House adjusting its voting process in light of the pandemic.

NADA indicates the bill provides a great deal of assistance for small businesses, with minimal eligibility requirements.  Much more information regarding the assistance application process, benefits, requirements and more will forwarded in the coming days.

Small Business Loan Provisions

A completely new, temporary lending program to aid small business The bill will provide $349 billion to support  loans through a new Paycheck Protection Program, which Congress designed to keep employees on the payroll and save small businesses. The Small Business Administration (SBA) will stand up a completely new program that will only nominally be part of the existing SBA Section 7(a) loan program. To expedite the funding of the new loans, the Treasury Department and SBA will expand the number of participating banks and credit unions, and captive finance companies may also be included. 

Minimal eligibility requirements Any business operational on February 15, 2020, that paid salaries and payroll taxes will be eligible, but there is a limit of no more than 500 employees. Fortunately, the bill includes provisions to waive normal affiliation rules which should be applicable to many dealers. For dealers, there will be no test for total revenue. 

Borrower certification to obtain loan Borrowers will be required to make a good-faith certification that the loan is necessary due to economic conditions caused by COVID-19 and that it will use the funds to retain workers and maintain payroll, lease and utility payments. 

Loans have terms NOT found in traditional bank loans Lenders will not require application fees, closing costs, collateral or personal guarantees. The maximum interest rate will be 4%, and the first six months’ payments (principal and interest) will be automatically deferred. Finally, the lenders are not expected to perform credit analysis, because the loans will be 100% guaranteed by the SBA.  

Maximum loan amount The maximum amount will be 250% of an employer’s average monthly payroll (based on a 12-month look back from the date of the loan), but NOT MORE than $10 million. 

Permitted uses of the loan The loan can be used for “payroll costs,” which include salary, commission, or similar compensation (up to an annual rate of pay of $100,000 per employee); employee group health care benefits, including insurance premiums; retirement contributions; and covered leave from February 15, 2020, to June 30, 2020. Permitted uses also include payments of interest on mortgages, rent, utilities and interest on any other debt obligations that were incurred before February 15, 2020. 

Loans may be forgiven In general, borrowers will be eligible for loan forgiveness equal to the amount of certain expenses spent during an eight-week period after the origination date of the loan. These expenses are payroll costs, interest payments on any secured debt incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020.  

Percentage of employee retention related to amount of loan forgiveness The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year, and by the reduction in pay of any employee in excess of 25% of the employee’s prior-year compensation. However, to encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that rehire previously laid-off workers by June 30, 2020, will still qualify and not be penalized for having a reduced payroll during the loan period. 

No effect on federal Income tax Canceled indebtedness under this program will not be included in the borrower’s taxable income.   

Loan amounts not forgiven Any loan amounts not forgiven at the end of one year will be carried forward as an ongoing loan with terms of a maximum of 10 years at 4 percent interest or less. 

Tax Provisions Applicable to All Businesses

The CARES Act contains many dealer-friendly tax provisions that will assist dealers in maintaining liquidity during the disruptions caused by the ongoing coronavirus outbreak.  

Net operating loss (NOL) carryback Dealers will be permitted to offset losses in 2018, 2019 and 2020 against profits from the prior five years. NOL carryback was previously eliminated by the Tax Cuts and Jobs Act (TCJA) in 2017. This provision may provide dealers with losses in 2020 with substantial refunds. Losses that are used to offset pre-TCJA profits, which were taxed at a higher rate, will be refunded at pre-TCJA tax rates, providing an additional boost. 

Modification on losses for taxpayers other than corporations TheTCJA generally limited the amount of losses noncorporate taxpayers, including pass throughs, could claim to $500,000. Under the bill this limitation is suspended, allowing dealers to utilize excess business losses along with the new NOL carryback provisions to access critical cashflow.  

Qualified improvement property (QIP) technical fix The TCJA intended for businesses to deduct improvements made to retail property immediately under the TCJA’s bonus depreciation provisions, but due to a drafting error the depreciation lifespan was set at 39 years. This bill corrects this error retroactive to 2018. Dealers with significant outlays on QIP in previous years should consider amending their 2018 and 2019 returns to claim the deductions and receive a refund. 

Interest deductibility limit increased. The TCJA limited the deductibility of business interest to 30% of a dealership’s adjusted taxable income, except for floor plan financing interest, which remained 100% deductible. The bill allows businesses to deduct up to 50% of their adjusted taxable income for 2019 and 2020. Dealers should note that, coupled with the proposed IRS rules on the interplay between bonus depreciation and floor plan financing interest, if their total business interest, including floor plan financing interest, amounts to less than 50% of adjusted taxable income for these years, they may also be able to avail themselves of the bonus depreciation provisions in TCJA. Dealers unable to use full expensing in 2019 due to interest expenses between 30% and 50% of their adjusted taxable income may be able to generate refunds by filing an amended 2019 return.  

Employee retention credit Dealers who have been forced to close their business due to a government-mandated shutdown will be allowed a refundable payroll tax credit for retaining their employees. The credit is generally available to dealers whose operations have been fully or partially closed due to a government mandate and whose gross receipts have declined by more than 50%. For dealers with 100 or fewer employees, all employee wages qualify for the credit regardless of whether the business is shut down or not. The credit is limited to the first $10,000 of compensation paid per employee. This credit is available through the end of 2020. 

Delay of payroll taxes The bill allows businesses to delay the 6.2% employer portion of the Social Security payroll tax for the remainder of 2020. The delayed tax liability would then be paid back apportioned equally over the following two years.

As further details become available, NADA will release a more extensive summary of these provisions. For any questions, contact legislative@nada.org.